Income is Healthy, Not Earning, Spending It

Getting money is good for your health, but working hard for your money, in the way people work harder in boom times, and spending it with gusto, in the way people spend more after payday, is bad for your health. Here is the evidence.

First, higher income seems consistently correlated with better health. There have been arguments about the direction of causation, but this ’05 paper suggests much of the relation is due to higher income causing better health:

This paper studies the effects of income on health and mortality, using only the part of income variation due to a truly exogenous factor: monetary lottery prizes of individuals. The findings are that higher income causally generates good health and that this effect is of a similar magnitude as when traditional estimation techniques are used. A 10 percent income increase improves health by about 4–5 percent of a standard deviation

However, we also consistently find that folks are less healthy in economic boom times. For example:

There is a counter-cyclical variation in physical health that is especially pronounced for individuals of prime-working age, employed persons, and males. The negative health effects of economic expansions persist or accumulate over time, are larger for acute than chronic ailments, and occur despite a protective effect of income and a possible increase in the use of medical care.

Many studies find that households increase their consumption after the receipt of expected income payments, a result inconsistent with the life-cycle/permanent income hypothesis. Consumption can increase adverse health events, such as traffic accidents, heart attacks and strokes. In this paper, we examine the short-term mortality consequences of income receipt. We find that mortality increases following the arrival of monthly Social Security payments, regular wage payments for military personnel, the 2001 tax rebates, and Alaska Permanent Fund dividend payments. The increase in short-run mortality is large, potentially eliminating some of the protective benefits of additional income.

We document a within-month mortality cycle where deaths decline before the 1st day of the month and then spike after the 1st. This cycle is present across a wide variety of causes and demographic groups. A similar cycle exists for a range of activities, suggesting the mortality cycle may be due to short-term variation in levels of activity. We provide evidence that the within-month activity cycle is generated by liquidity. Our results suggest a causal pathway whereby liquidity problems reduce activity, which in turn reduces mortality. These relationships help explain the pro-cyclic nature of mortality.

“Spending money like a drunken sailor” in the old phrase, which describes men on liberty with a pocket full of payday the world over.

I’m guessing it’s the drinking and not the spending which is detrimental to one’s health!

loqi

Assuming alcohol is the primary culprit, I wouldn’t expect the date of consumption to correlate so nicely with the mortality spike unless a large portion of the alcohol-related fatalities in question take the form of sudden accidents (e.g., drunk driving). The other detrimental effects of drinking are slow and cumulative, so I would expect them to be more uniformly distributed.

Michael Turner

Actually, heavy drinking has been implicated in triggering both heart attacks and strokes. So payday binges might be the major factor here, with acquired chronic alcoholism and drug binging during boom times running second.

But we should probably look at economic bubbles, too. Chasing a dream can be very stressful, finding out you’ve only chased a mirage even more so. People who work too hard often end up playing too hard to compensate, but just the work itself (and the disappointment in losing out on the Ponzi Scheme, as most participants do, and consequent unemployment, losing health coverage, neglecting ailments because of that) might be culprit enough.

Well, we’ve got lots of policy entrepreneurship around health care right now, and there’s probably more to come. At the same time, economists are moaning that regulatory reform seems to be stalled. Maybe it’s time to establish some linkage: both bubbles and their catastrophic aftermaths are hazardous to your health, smoothing them out would not only make people wealthier in the long run, but healthier. Using markets to smooth out markets is also good public health policy, not just economic management. What’s not to like?

Chances of it happening? Well, wish on a star, baby. But at the very least, maybe insurance companies will start offering better rates to people who sign up for salary payment plans that pay out much more incrementally – or even just for those who take their pay packet on a Monday, rather than a Friday with everyone else.

tom

This paper is just like your discussions about men vs. women: you can look at numbers, or you can listen to hip-hop:

I notice that my posts where I pose puzzles get a lot less comments than posts that make claims.

Douglas Knight

An explanation for within-cycle mortality is that deaths are fraudulently postponed. Also, people expecting death may hold on for the sake of their heirs (this makes more sense for SS than for paychecks).